Wednesday, April 20, 2011

Is Obama chasing nation's tax base away?

Maybe it's time for taxpayers to start voting with their feet.
As the politicians in Washington, D.C., engage in their latest kabuki theater on the size and scope of the federal budget, nobody likes to talk about what it takes for there to be a budget, or even an economy, in the first place.
People, as in real live human beings, need to earn taxable income with their labor or capital in order for some of that money to be available to the federal government to pay taxes and to fund our budget.
This is very different from how the deficit is funded. The deficit can be funded by the Federal Reserve monetizing the debt or strong-arming U.S. and foreign banks and other central banks to buy out debt with the threat that if they don't buy the U.S. government will take retribution on them in some way.
This is one reason why it's so much easier for the government to increase the deficit rather than cut spending, which obviously hurts certain vested interests and constituencies, or raise taxes, which require people to actually give up money they have earned to the government.

Both of these options are much harder than just playing money printing and diplomatic games with the deficit. Of course there is a limit to how big the deficit can get before you run out of games and threats up your sleeve to fund it.

We have reached that point. Now the politicians have to deal with the cold, hard reality that some of their campaign contributors and constituents are going to be unhappy either with the spending cuts or the tax increases that need to happen.
Of course the big difference between spending cuts and tax increases is that, at the end of the day, all spending will either be a tax increase or additional government debt. There is no way around it. Nothing is free. You can defer the cost, but you can't eliminate the costs forever.
Similarly, the day of reckoning is not so far away when it comes to pushing these costs out into the future. The only rational thing to do with the harsh realities facing us is to cut entitlement spending. This is the spending that creates the fewest jobs and provides the least stimulus to the economy. Even a wacko Keynesian like Paul Krugman should agree with that much. The problem is that there are an army of lobbyists and special interests who will fight to the death to keep their hand outs. This is everyone from the big drug companies, to the big agribusiness conglomerates, to the big multinational corporations, to the Medicare and Medicaid providers, to AARP. Nobody wants to lose what they have. They want somebody else to pay for it forever, or at least until they die.
Problem is that there are fewer and fewer people actually paying most of the federal taxes. Corporations pay less and less. We have no national sales tax or value added tax like many other countries. We have very little in the way of tariffs or duties. Most of the federal tax collections are from individual income taxes.
Further, most of these individual income taxes are paid by an increasingly small percentage of the population. The tax base, or the "suckers" as they are called in Washington, D.C., is harder and harder to find. Recent estimates show that the top 1 percent of households is now paying about 70 percent of all the federal taxes. This is only about 1 million households. At some point, why should these 1 million households want to pay for the entitlements of all these other groups, especially since many of these groups receiving the entitlements payments are rich themselves.
Especially since an increasing share of these households are nearing the retirement age and don't need to work anyway or are in high tech and don't need to be in any particular physical location to make their money, wouldn't it possibly make a lot more sense for many of them to just decide to leave the U.S., give up their citizenship and set up shop in one of the many other welcoming, safe, friendly, and less expensive places around the world?
At some point, and that point may be arriving soon, these 1 million households may start to question what is so great about being part of this system that vilifies them, takes a large share of their hard-earned money, and then gives it away to other people who more often than not are financially well off themselves. This is nothing more than a government-sanctioned scam. It resembles something more like a Mafia protection racket the more you look at it.
So while all this debate is happening between the politicians about which taxes or spending cuts are fair or unfair, maybe the few people who are actually paying for all this profligacy should start thinking more seriously about voting with their feet and moving to greener pastures elsewhere.
There are definitely other places in the world that might be very happy to take just 15 percent or 20 percent of their income instead of the 40 percent or more than Obama and some in the Democratic Party think is their "fair" share. It is truly ironic that two of the countries with these much lower tax rates are Russia and China. It seems that decades of communism taught them just how stupid it is to crush the most productive people in their societies. When will some politicians in America learn this lesson?

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